Most FTSE-100 final salary pensions gone by 2012

Most of Britain's 100 biggest companies could shut their final salary pension schemes to existing workers as well as new members within six years, a new report has predicted.

The review of the UK pensions' market by actuarial firm Lane Clark & Peacock has come the day after it emerged that department store chain Debenhams is to close its final salary scheme to all its staff, three months after floated on the stock market.

Prestigious retailer Harrods closed its scheme in February but so far only one FTSE-100 company – Rentokil Initial – has closed its scheme to existing employees rather than simply new recruits.

But the LC&P report makes it clear that it believes dozens are set to follow between now and 2012 in an attempt to slash escalating pension costs.

Charlie Finch, a consultant at Lane Clark & Peacock, said that part of the problem was, ironically, new legislation within the 2004 Pensions Act designed to encourage firms to do more to tackle pensions' deficits.

"Although the new legislation makes it more likely that pension scheme members will receive their promised benefits, the price could be more scheme closures as companies are forced to commit cash to funding their deficits instead of paying benefits for current employees," he said.

UK pension deficits of FTSE 100 companies totalled £36bn as of July, said LC&P, down from the high of £54bn recorded in January, which was the result of volatile financial markets.

At the same time, it is clear companies are not ignoring the problem – company pension contributions had increased to £12.1bn – a record level, said LC&P.

The highest contributions were paid by HSBC (£1.3bn), Royal Dutch Shell (£702m) and GlaxoSmithKline (£673m), it said.

Eight companies paid more into their pension schemes than to their shareholders, it added.

Despite the lack of progress in reducing the aggregate deficit over the past year, LCP estimated that the FTSE-100 companies were still on track to clear the aggregate deficit by 2012.

Only five companies in the FTSE-100 reported a pension scheme accounting surplus in 2005: Associated British Foods, Gallaher Group, Johnson Matthey, Old Mutual and Schroders.

Some 92 FTSE-100 companies have a final salary scheme, and most have now been closed to new members.

In the past three months Royal Bank of Scotland and Friends Provident have announced plans to do this, but most have stopped short of closing them to current employees, fearing the anger it will cause.

But LC&P predicted that, by 2012, the majority of companies offering final salary schemes to employees will have bitten this bullet.

The report also revealed that only three companies had deficits greater than 30 per cent of their market capitalisation compared with six at 2004 year end.

The three were British Airways (54 per cent), BAE Systems (43 per cent) and ICI (38 per cent), said LC&P.